Cash flow forecasting trends in 2020

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Cash flow forecasting trends in 2020

Thomas RUBIO is the CashSolveDirector of Consulting at ACA. He uses his cash flow performance management experience to assist numerous large and medium-sized companies in implementing cash flow forecasting management solutions.

With 2020 just starting, what are the trends that you see among company treasurers?

The concern that we see among treasurers and CFOs revolves around making cash flow forecasts MORE RELIABLE because the strategy for financing growth and improvement of financial performance depend on those forecasts. Risk management is also a major part of cash flow forecast management: liquidity risks, the risk of breach of contract, forex risk, etc. Simply looking at EBITDA is not enough for effective financial management. You need a deep understanding of the company’s cash flow to produce a reliable cash flow forecast and establish confidence in the numbers produced

In your opinion, what methods should be used?

You first need to establish a method in order to create a model for use in the long term. ‘Home-made’ forecasting models in Excel are often not very adaptable and are rarely shareable or collaborative. An integrated program that provides a consistent method and that is accessible to users will allow you to easily incorporate management data from IT systems and quickly produce reliable forecasts and gap analyses. Today, companies’ implementation of a real cash flow forecasting management system still tends to be too tepid or too ‘occasional’ (when requested by banks or when acquiring or selling companies, etc.).

Ultimately, what are treasurers looking for?

Today, corporations establish action plans for optimising their WCRs, planning their capex, and thus anticipating their needs so that they can plan financing accordingly. Twelve-month forecasts provide a view of the overall needs of the company for financing its growth projects and regular operations. Corporations also want to be able to quickly simulate the impacts of M&As on their cash flow and balance sheets. A rolling 13-week, short-term forecast, updated frequently, can provide additional support for this medium-term view and enable more reactive operational management of liquidity.

Strong support from management and the involvement of all finance positions in the company are essential for the success of this type of project. It is a major, structural project that generates value for the company and its teams

What advice do you have for treasurers in 2020?

I would tell them, don’t hesitate to win over the financial decision-makers in your company to get the resources, tools, and organisation that will enable your cash flow department to deliver all of the added value that it can! Go convince your top management that they need to adopt the right tools which, once in place, will allow them to anticipate, get advance warning, and prevent any liquidity crisis. That’s what we offer with our Cash Modeling solution.

*M&A : Mergers & Acquisitions

Cash Modeling is a financial modelling program that allows you to securely manage cash flow, debt, WCRs, and financial ratios.